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Home-buyers, Housing and the Macroeconomy

In: Asset Prices and Monetary Policy

  • Karl E Case

    (Wellesley College)

  • John M Quigley

    (University of California, Berkeley)

  • Robert J Shiller

    (Yale University)

We present the results of a new survey of US home-buyers in 2002. The most important finding is that the survey suggests that home-buyers’ expectations are substantially affected by recent experience. Even after a long boom that has taken prices to very high levels, home-buyers typically have expectations that prices will show double-digit annual price growth over the next 10 years, apparently with only a modest level of risk. We conjecture that these characteristics of individuals’ expectations may contribute to the substantial swings that are observed in housing prices. Changes in housing wealth, especially if they are perceived as long-lasting, may have substantial macroeconomic effects through private consumption. In the second part of the paper, we examine the link between increases in housing wealth, financial wealth, and consumer spending. We rely upon a panel of 14 countries observed annually for various periods during the past 25 years and a panel of US states observed quarterly during the 1980s and 1990s. We find a statistically significant and rather large effect of housing wealth upon household consumption.

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This chapter was published in: Anthony Richards & Tim Robinson (ed.) Asset Prices and Monetary Policy, Reserve Bank of Australia, pages , 2003.
This item is provided by Reserve Bank of Australia in its series RBA Annual Conference Volume with number acv2003-09.
Handle: RePEc:rba:rbaacv:acv2003-09
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  1. Engelhardt, Gary V., 1996. "House prices and home owner saving behavior," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 313-336, June.
  2. Karl E. Case & Robert J. Shiller, 1990. "Forecasting Prices and Excess Returns in the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(3), pages 253-273.
  3. Peek, Joe, 1983. "Capital Gains and Personal Saving Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(1), pages 1-23, February.
  4. Ohtake, F. & Horioka, C.Y., 1995. "Saving Motives in Japan," ISER Discussion Paper 0392, Institute of Social and Economic Research, Osaka University.
  5. Jonathan Skinner, 1989. "Housing Wealth and Aggregate Saving," NBER Working Papers 2842, National Bureau of Economic Research, Inc.
  6. Robert J. Shiller & Karl E. Case, 1988. "The Behavior of Home Buyers in Boom and Post-Boom Markets," Cowles Foundation Discussion Papers 890, Cowles Foundation for Research in Economics, Yale University.
  7. Karl E. Case & Robert J. Shiller, 1988. "The Efficiency of the Market for Single-Family Homes," NBER Working Papers 2506, National Bureau of Economic Research, Inc.
  8. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
  9. Englund, Peter & Ioannides, Yannis M., 1997. "House Price Dynamics: An International Empirical Perspective," Journal of Housing Economics, Elsevier, vol. 6(2), pages 119-136, June.
  10. Yoshikawa, Hiroshi & Ohtaka, Fumio, 1989. "An analysis of female labor supply, housing demand and the saving rate in Japan," European Economic Review, Elsevier, vol. 33(5), pages 997-1023, May.
  11. Elliott, J Walter, 1980. "Wealth and Wealth Proxies in a Permanent Income Model," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 509-35, November.
  12. de La Paz, Paloma Taltavull, 2001. "Housing and Consumption in Spain," ERES eres2001_283, European Real Estate Society (ERES).
  13. Levin, Laurence, 1998. "Are assets fungible?: Testing the behavioral theory of life-cycle savings," Journal of Economic Behavior & Organization, Elsevier, vol. 36(1), pages 59-83, July.
  14. Nikola Dvornak & Marion Kohler, 2007. "Housing Wealth, Stock Market Wealth and Consumption: A Panel Analysis for Australia," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 117-130, 06.
  15. Goodman, John Jr. & Ittner, John B., 1992. "The accuracy of home owners' estimates of house value," Journal of Housing Economics, Elsevier, vol. 2(4), pages 339-357, December.
  16. William G. Gale & John Sabelhaus, 1999. "Perspectives on the Household Saving Rate," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 181-224.
  17. Barot, Bharat & Yang, Zan, 2002. "House Prices and Housing Investment in Sweden and the United Kingdom: Econometric Analysis for the Period 1970-1998," Working Paper 80, National Institute of Economic Research.
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